Sustainable investing is pivoting to Plan B. Billed as humanity's last chance to avert disastrous climate change by committing states to halve global emissions by 2030, Glasgow's United Nations COP26 global shindig ultimately managed nothing of the sort. In 2022 that will focus money minds on what happens when temperatures rise.
The stereotypical climate-change investment thus far has been buying shares in a renewable energy maven like Denmark's $52 billion Orsted, which mitigates carbon emissions and slows down warming. COP26 had a new focus on adaptation, which covers what to do when higher temperatures materialise. Rich countries agreed to double annual transfers to developing countries to $40 billion for battling rising sea levels, droughts, and more violent storms.
The actual opportunity is much larger. Bank of America reckons the overall climate adaptation market will double to $2 trillion per year within the next five years. The UN's Global Commission on Adaptation says a $1.8 trillion investment by 2030 in early warning systems, resilient infrastructure, dryland agricultural crop production, mangroves, and water resource management would yield more than $7 trillion of benefits in avoided costs from climate change effects.
To see how this would work in detail, consider the global chemicals sector. Switzerland's Syngenta, whose Chinese owner is mulling a $60 billion listing, spends $2 billion a year on research and development helping farmers maintain yields hit by planetary warming. That includes drought-resistant cabbage and corn with deeper roots, fungicides to stop flood-ravaged crops going mouldy, and grain variants that shorten the time to fatten beef. Its $50 billion German rival Bayer is a potential winner too.
Who else is in the mix? Big engineers like Canada's $16 billion WSP Global will be constantly engaged helping municipalities redesign infrastructure to guard against flooding. France's Veolia is well-placed to scoop up desalination contracts to render saltwater in drought-afflicted areas drinkable. And there are racier ways to hedge against climate change.
Microsoft and Swiss Re have invested in so-called direct air capture to suck carbon from the air. Even wacky ideas like solar geoengineering to dim the sun will gain traction. Miserabilists, meanwhile, can always try $1 billion US gunmaker Smith & Wesson, or an appropriate proxy for canned food. But they can achieve the same result by taking a more sober punt on adaptation.